Fiscal Policy Division Pakistan Institute of Development Economics Islamabad

(6 th August, 2010) Ayaz Ahmed Sr. Research Economist & Mahmood Khalid Research Economist Fiscal Policy Division Pakistan Institute of Development Economics Islamabad

Provincial Budget Allocations Grants and Loans Financing of Deficit Provincial Transfers Provincial Revenues Provincial Expenditures Budget Making-Post NFC Source of Data 1. Ministry of Finance Web-site 2. State Bank Annual Report (2009) 3. Combined Finance and Revenue Accounts of the Federal, Provincial and District Governments (Various issues)

Provincial Budget Allocations

Budget Allocation in PUNJAB (Rs In Million) Heads/Years 2004-05 2005-06 2006-07 2007-08 2008-09 Total Revenue/Grants 159,945 221,818 234,969 327,002 364,377 Provincial Own Receipts 18.13 21.56 19.84 18.72 20.60 Tax Revenue 12.52 9.19 8.34 6.19 6.06 Non-Tax Revenue 5.61 12.37 11.49 12.53 14.55 Federal Transfers 81.87 78.44 80.16 81.28 79.40 Provincial Share 80.47 66.97 81.50 69.73 72.78 Federal Grants 1.39 11.47-1.34 11.55 6.62 Total Expenditure 182,312 236,103 315,548 340,464 383,306 Current 72.42 67.10 65.27 65.12 72.14 Development 27.58 32.90 34.73 34.88 27.86 Balance (22,367) (14,285) (80,579) (13,462) (18,929) Own Receipts/Expenditure 15.91 20.26 14.77 17.98 19.58 Total Receipts/Expenditure 87.73 93.95 74.46 96.05 95.06 Balance/Expenditure (12.27) (6.05) (25.54) (3.95) (4.94)

Budget Allocation in SINDH (Rs In Million) Heads/Years 2004-05 2005-06 2006-07 2007-08 2008-09 Total Revenue/Grants 103,392 129,803 146,811 188,804 209,959 Provincial Own Receipts 15.57 14.83 13.03 15.00 12.83 Tax Revenue 11.42 10.36 9.56 9.08 10.01 Non-Tax Revenue 4.15 4.47 3.48 5.92 2.82 Federal Transfers 84.43 85.17 86.97 85.00 87.17 Provincial Share 76.94 74.20 89.44 75.70 76.97 Federal Grants 7.49 10.97-2.48 9.30 10.20 Total Expenditure 104,650 136,020 161,853 181,520 220,340 Current 77.71 76.54 78.30 74.99 78.18 Development 22.29 23.46 21.70 25.01 21.82 Balance (1,258) (6,217) (15,042) 7,284 (10,381) Own Receipts/Expenditure 15.39 14.15 11.82 15.60 12.22 Total Receipts/Expenditure 98.80 95.43 90.71 104.01 95.29 Balance/Expenditure (1.20) (4.57) (9.29) 4.01 (4.71)

Budget Allocation in Khyber Pukhtoon Khawa (Rs in Million) 2004-05 2005-06 2006-07 2007-08 2008-09 Total Revenue/Grants 47,618 68,267 63,904 99,841 111,934 Provincial Own Receipts 21.52 23.35 21.21 25.77 21.52 Tax Revenue 4.04 3.23 3.72 2.57 1.92 Non-Tax Revenue 17.47 20.13 17.49 23.21 19.59 Federal Transfers 78.48 76.65 78.79 74.23 78.48 Provincial Share 64.27 52.01 72.04 56.56 58.57 Federal Grants 14.21 24.63 6.75 17.66 19.91 Total Expenditure 46,909 76,854 72,813 84,181 103,157 Current 74.83 77.70 67.55 66.86 69.08 Development 25.17 22.30 32.45 33.14 30.92 Balance 709 (8,587) (8,909) 15,660 8,777 Own Receipts/Expenditure 21.84 20.74 18.61 30.57 23.35 Total Receipts/Expenditure 101.51 88.83 87.76 118.60 108.51 Balance/Expenditure 1.51 (11.17) (12.24) 18.60 8.51

Budget Allocation in Baluchistan (Rs In Million) Heads/Years 2004-05 2005-06 2006-07 2007-08 2008-09 Total Revenue/Grants 27,126 30,453 37,737 51,552 64,205 Provincial Own Receipts 6.13 4.76 7.74 6.81 5.90 Tax Revenue 3.12 2.67 2.12 1.64 1.33 Non-Tax Revenue 3.00 2.09 5.62 5.18 4.57 Federal Transfers 93.87 95.24 92.26 93.19 94.10 Provincial Share 68.18 66.73 82.87 58.21 51.82 Federal Grants 25.69 28.52 9.39 34.98 42.29 Total Expenditure 37,612 47,620 52,726 64,939 59,175 Current 81.24 70.08 72.97 66.05 74.57 Development 18.76 29.92 27.03 33.95 25.43 Balance (10,486) (17,167) (14,989) (13,387) 5,030 Own Receipts/Expenditure 4.42 3.04 5.54 5.41 6.40 Total Receipts/Expenditure 72.12 63.95 71.57 79.39 108.50 Balance/Expenditure (27.88) (36.05) (28.43) (20.61) 8.50

Federal Grants and Loans

Federal Loans and Grants-Punjab 38000.000 M i l l i o n R s 18000.000-2000.000-22000.000-42000.000 2004-05 2005-06 2006-07 2007-08 2008-09 -62000.000-82000.000 Federal loans & Grants Loans (net) Grants Over all Balance

Federal Loans and Grants-Sindh 24000.000 19000.000 M i l l i o n R s 14000.000 9000.000 4000.000-1000.000-6000.000 2004-05 2005-06 2006-07 2007-08 2008-09 -11000.000-16000.000 Federal loans & Grants Loans (net) Grants Over all Balance

Federal Loans and Grants-Khyber Pakhtoon Khawa 25000.000 20000.000 M i l l i o n R s 15000.000 10000.000 5000.000 0.000-5000.000 2004-05 2005-06 2006-07 2007-08 2008-09 -10000.000 Federal loans & Grants Loans (net) Grants Over all Balance

Federal Loans and Grants-Baluchistan M i l l i o n R s 27000.000 22000.000 17000.000 12000.000 7000.000 2000.000-3000.000-8000.000-13000.000-18000.000 2004-05 2005-06 2006-07 2007-08 2008-09 Federal loans & Grants Loans (net) Grants Over all Balance

Financing of Deficits

Financing of Budget Deficits-Punjab (Million RS) 2004-05 2005-06 2006-07 2007-08 2008-09 Over all Balance (Total Revenue- Exp) -22368.000-14285.000-80579.000-13463.000-18928.000 1. Financing -12023.000-23680.000-20889.000-4788.000 29962.000 1.1.Domestic -12023.000-23680.000-20889.000-4788.000 29962.000 1.1.1.Bank -12023.000-23680.000-20889.000-4788.000 35151.000 1.1.2.Non Bank - - - - -5189.000

Financing of Budget Deficits-Sindh (Million Rs) 2004-05 2005-06 2006-07 2007-08 2008-09 Over all Balance (Total Revenue- Exp) -1258.000-6217.000-15042.000 7284.000-10381.000 1. Financing -4836.000-9525.000-8635.000-1980.000-7941.000 1.1.Domestic -4836.000-9525.000-8635.000-1980.000-7941.000 1.1.1.Bank -4836.000-9525.000-8635.000-1980.000-5779.000 1.1.2.Non Bank - - - - -2162

Financing of Budget Deficits-Khyber Pakhtoon Khawa (Million Rs) 2004-05 2005-06 2006-07 2007-08 2008-09 Over all Balance (Total Revenue- Exp) 709.000-8586.000-8909.000 15660.000 8776.000 1. Financing -2813.000-5540.000-5033.000-1154.000 8426.000 1.1.Domestic -2813.000-5540.000-5033.000-1154.000 8426.000 1.1.1.Bank -2813.000-5540.000-5033.000-1154.000 8534.000 1.1.2.Non Bank - - - - -108

Financing of Budget Deficits-Baluchistan (Million Rs) 2004-05 2005-06 2006-07 2007-08 2008-09 Over all Balance (Total Revenue- Exp) -10485.000-17167.000-14989.000-13387.000 5030.000 1. Financing -1101.000-2168.000-1861.000-427.000 6264.000 1.1.Domestic -1101.000-2168.000-1861.000-427.000 6264.000 1.1.1.Bank -1101.000-2168.000-1861.000-427.000 7475.000 1.1.2.Non Bank - - - - -1211

Cost of the Debt (Interest Payment as % of Development Expenditures 40.000 35.000 30.000 25.000 % 20.000 3 7 15.000 10.000 2 5 2 7 1 9 2 5 2 2 1 3 8 1 0 8 1 0 5.000 9 1 5 8 1 2 1 0 1 6 1 0 1 1 6 0.000 Punjab Sindh Khyber Pakht oon Khawa Baluchist an 2004-05 2005-06 2006-07 2007-08 2008-09

Provincial Transfers

Transfers to Provinces from the Divisible Pool Receipts 2005 2006 2007 2008 2009 Revenue Receipts 875.30 1022.70 1214.00 1402.90 1783.60 Less Transfers to Provinces 245.20 301.40 391.00 457.10 559.80 % among Sources Taxes on Income 25.19 25.25 30.44 32.09 32.57 Sales Tax 34.28 33.46 30.90 32.64 33.51 Excise Duty & Royalties 9.46 10.37 8.49 8.71 9.16 Surcharges on Gas 5.87 7.24 8.34 4.51 4.61 Custom Duties 16.55 16.11 13.51 12.82 10.58 Capital Value Tax 0.33 0.47 0.51 0.50 0.45 Federal Excise ( Net on Gas ) 7.13 6.01 6.65 7.55 8.16 G.S.T ( Provincial ) 1.14 1.23 1.18 1.18 0.96

Rs. Million Budget 2009-10 Revised 2009-10 Budget 2010-11 Gross Total revenues 2007206 2051944 2410994 Provincial Share 655217 655277 1033644(58%) % 32.64 31.93 42.87

Rs. Million Budget 2009-10 Revised 2009-10 Budget 2010-11 Total PSDP 646000 510000 663000 Financing of PSDP by Provinces 172987 183957 341615 % 26.78 36.07 51.53

Rs. Million Budget 2009-10 Revised 2009-10 Budget 2010-11 Change in the Provincial Cash Balance 72911 77568 166925 Repayments to Federal Government 37219 42721 42501 Recovery of Loans from Provinces 20400 23975 25863 Interest payments 16819 18746 16638

Resources available for Provinces to Decide Net Resource transfer from Revenues 1033644 Punjab 230766 Financing of PSDP by Provinces 341615 Sindh 130557.8 Change in Provincial Cash Balance 166925 KPK 74870.78 Repayment to Federal Government 42501 Baluchistan 46408.41 47% Left over for own Decision 482603

Resource availability for Provinces Net Resource transfer increase from Revenues Increase in PSDP Increase in Provincial Cash Balances Increase in Repayment to Federal Government Net Resource transfer increase 378367 157658 89357-220 131572

Inter-Provincial Revenue Distribution under various NFC Awards (Percentage) Years Fed : Prov. Punjab Sindh Khyber Pakht oonkh wa Balochist an Total 1974 20:80 60.25 22.5 13.39 3.86 100 1979 20:80 57.97 23.34 13.39 5.3 100 1984 Interim award 1991 20:80 57.87 23.29 13.54 5.3 100 1997 62.5:37.5 57.88 23.28 13.54 5.3 100 2000 Interim award 2010 56:44 51.74 24.55 14.62 9.09 100 Source: Ministry of Finance, Pakistan

7th NFC resource transfers (vertical share is 56% this year and 57% next years) Province-Wise Share Budget 2009-10 Revised 2009-10 Budget 2010-11 Punjab 51.04 50.60 47.82 Sindh 29.62 30.41 27.05 KPK 13.02 13.57 15.51 Baluchistan 6.32 5.42 9.62 Total Transfer from Revenue of Federal 655217 655277 1033644

Actual Disbursement as Percentage of Total Projected Transfers Under Different NFCs Receipts 2005 2006 2007 2008 2009 Revenue Receipts 875.3 1,022.7 1,214.0 1,402.9 1,783.6 Transfers to Provinces 28.01 29.47 32.21 32.58 31.39 Committed Vertical Distribution of Resources (Government of Punjab White Paper on the Budget, 2009-10) 39.5 40.5 41.5 42.5 43.75 Actual Transfers as a Percentage of Committed 70.92 72.77 77.61 76.66 71.74

Actual Disbursement as Percentage of Total Projected Transfers Under Different NFCs Year Total Punjab Sindh NWFP Baluchistan 1997-1998 79.79 76.96 97.11 52.41 125.9 1998-1999 73.71 66.99 81.66 62.73 117.23 1999-2000 74.75 66.04 89.77 59.42 119.78 Source: Ahmad Nuzhat & Syed Ashraf Wasti in ADB report: Intergovernmental Fiscal Transfer in Asia: Curent Practice and Challenges for the Future, 2002

Provincial Revenues

Provincial Revenues-Punjab 80000 70000 60000 50000 40000 30000 20000 10000 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Others Total Provincial Revenues

Provincial Revenues Shares-Punjab % 70 60 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Others

Provincial Revenues-Sindh 30000 M i l l i o n R u p e e s 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Others Total Provincial Revenues

Provincial Revenues Shares-Sindh % 80 70 60 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Others

Provincial Revenues-Khyber Pakhtoon Khawa 25000 M i l l i o n R u p e e s 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Profits from hydro electricity Others Total Provincial Revenues

Provincial Revenues Shares-Khyber Pakhtoon Khawa % 80 70 60 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Profits from hydro electricity Others

Provincial Revenues-Baluchistan M i l l i o n R u p e e s 4000 3500 3000 2500 2000 1500 1000 500 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Others Total Provincial Revenues

Provincial Revenues Shares-Baluchistan % 80 70 60 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 Provincial Taxes Proerty Taxes Excise Duties Stamp Duties Motor Vehicles Tax Other Provincial Nontax Intrest Irrigation Others

Provincial Expenditures

Share of Major Function among Expenditures from Consolidated Funds- 2005-06 Revenue Expenditures Federal Punjab Sindh Khyber Pakhtoon Khawa (some unallocable amount is mentioned) Baluchistan General Public Service 58.14 49.79 44.87 24.67 11.44 Defence 23.81 0.00 0.00 0.00 0.00 Public Order and Safety Affairs 2.27 8.36 10.55 8.17 16.33 Economic Affairs 11.35 10.20 15.63 7.62 31.96 Environment Protection 0.02 0.84 0.04 0.07 2.20 Housing and Community Amenities 0.43 4.45 0.26 2.02 2.07 Health 1.18 5.69 6.14 6.01 8.72 Recreation, Culture and Religion 0.34 0.49 0.32 0.29 1.12 Education Affairs and Services 2.16 19.36 21.38 26.96 25.82 Social Protection 0.31 0.81 0.81 18.62 0.34

Share of Major Function among Expenditures from Consolidated Funds- 2005-06 Capital Expenditures Federal Punjab Sindh Khyber Pakhtoon Khawa Baluchistan General Public Service 72.39 0.00 0.09 6.53 0.07 Defence 0.00 0.00 0.00 0.00 0.00 Public Order and Safety Affairs 0.00 0.00 0.00 0.00 3.19 Economic Affairs 27.61 96.40 70.65 67.25 64.60 Environment Protection 0.00 0.00 0.00 1.81 4.40 Housing and Community Amenities 0.00 0.36 12.43 16.41 14.50 Health 0.00 0.00 2.70 0.00 1.14 Recreation, Culture and Religion 0.00 0.00 0.38 0.63 0.42 Education Affairs and Services 0.00 0.01 9.49 0.99 4.71 Social Protection 0.00 3.23 4.27 2.05 6.98

Share of Governments for Major Function among Total Expenditures from Consolidated Funds-2005-06 Federal Revenue Expenditures 67.865 32.135 General Public Service 73.851 26.149 Defence 100.000 0.000 Public Order and Safety Affairs 33.865 66.135 Economic Affairs 65.909 34.091 Environment Protection 4.927 95.073 All Provinces Housing and Community Amenities 23.204 76.796 Health 29.166 70.834 Recreation, Culture and Religion 60.994 39.006 Education Affairs and Services 17.555 82.445 Social Protection 16.735 83.265

Share of Governments for Major Function among Total Expenditures from Consolidated Funds-2005-06 Federal All Provinces Capital Expenditures 17.83 82.17 General Public Service 94.65 5.35 Defence 0.00 100.00 Public Order and Safety Affairs 0.00 100.00 Economic Affairs 6.84 93.16 Environment Protection 0.00 100.00 Housing and Community Amenities 0.00 100.00 Health 0.00 100.00 Recreation, Culture and Religion 0.00 100.00 Education Affairs and Services 0.00 100.00 Social Protection 0.00 100.00

Expenditures from Consolidated Funds-Federal P ercentage 90 80 70 60 50 40 30 20 10 0 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Capital Expenditures Loans and Advances

Expenditures from Consolidated Funds-Sindh 108 88 P ercentage 68 48 28 8-12 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Capital Expenditures Loans and Advances

Expenditures from Consolidated Funds-Khyber Pakhtoon Khaw a 108 88 P ercentage 68 48 28 8-12 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Capital Expenditures Loans and Advances

Expenditures from Consolidated Funds-Baluchistan P e rc e n ta g e 70 60 50 40 30 20 10 0 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Capital Expenditures Loans and Advances

Expenditures from Consolidated Funds-All Provinces P e rc e n ta g e 95 85 75 65 55 45 35 25 15 5-5 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Capital Expenditures Loans and Advances

Expenditures from Consolidated Funds-All Governments P e rc e n ta g e 90 80 70 60 50 40 30 20 10 0 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Capital Expenditures Loans and Advances

Expenditures Shares Among total from Consolidated Funds-Federal P ercen tag e 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Loans and Advances Capital Expenditures Total Expenditures

Expenditures Shares Among total from Consolidated Funds- All Provinces P ercentage 80 70 60 50 40 30 20 10-10 0-20 -30-40 -50-60 2000-01 2003-04 2004-05 2005-06 Revenue Expenditures Capital Expenditures Loans and Advances Total Expenditures

Budget making Post 7 th NFC

Punjab Sindh KPK Baluchista n All Provinces Budget components Budget Change (2009-10 - 2010-11) 1 Total Receipts 5.23 29.87 56.67 119.86 23.91 1.1 Total Revenue Receipts 30.68 30.86 48.85 95.63 37.66 1.11 Total Federal Transfer 24.37 38.00 51.84 101.05 38.38 1.111 Federal Share of Taxes 35.25 100.14 76.63 184.20 62.86 1.112 Subventions/Grants -86.88-58.68-42.99-14.14-54.87 1.113 Direct Transfers -38.12-4.72 79.84 34.10 12.03 1.12 Total Own Revenue 61.81 2.35-2.18 13.29 33.69 1.121 Total Own Tax Revenue 144.50 23.80 20.92 8.59 90.73 1.121 1 Own Direct Taxes 15.74 139.66 26.60-30.91 1.121 2 Own In-Direct Taxes 224.07 13.94 18.39-113.69 1.122 Own Non-Tax Revenues -21.03-15.99-15.06 15.40-17.37 1.2 Total Capital Receipts -28.52 20.67 75.83 328.42-5.69 1.21 Recoveries (Loans and Advances) -89.53 878.67-31.57-77.16 1.22 State Trading -0.59 - - - 11.76 1.23 Un-funded Debt -35.99 - - 462.37-30.66 1.24 Others 18.53 0.48-95.73 16.91

Punjab Sindh KPK Baluchista n All Provinc es Budget components Change (2009-10 - 2010-11) 2 Total Expenditures 5.97 31.22 44.83 104.75 23.02 2.1 Current Expenditures -1.95 20.53 43.44 124.85 16.28 2.11 Current Revenue Expenditures 21.54 19.32 17.39 57.20 22.87 2.111 Debt Servicing 5.46-19.14 151.99 17.65 2.12 Current Capital Expenditures -26.61 40.77 102.80 1490.74 3.60 2.2 Development Expenditures 38.85 61.75 49.54 44.33 47.28 2.21 Development Revenue Expenditures 23.93 81.75 49.54 347.93 56.91 2.22 Development Capital Expenditures 56.40 30.35-100.00 31.69 3 Surplus/Deficit 117.91 57.17-100.0-14.80-3.29

Provincial Budgeting Process is underpinned by Fiscal authority Over all the provinces own revenue base is low and stagnant Fiscal Transfers play a key role in cost of debt and debt servicing for the provinces There are different expenditure menus for each province representing its political/governance economy There has to be a constitution barring provinces to go over and above a threshold level of fiscal deficit Provincial capacity building in public financial management is required. However it should not just be in accounts keeping rather linking it with targets and achievements should be done. All the federal planning documents should now also incorporate the provincial public-finance aspects as well

Thanks for the Patience